MPC Retains Policy Rate at 14% as Uncertainty Looms over Next Meeting

banksGodwin Emefiele CBN Governor
  • MPC Retains Policy Rate at 14% as Uncertainty Looms over Next Meeting

Contrary to expectations by some market analysts that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) would cut its policy rate, the committee Tuesday rose from its last meeting for the year and retained Monetary Policy Rate (MPR) at 14 per cent.

The MPC also retained the Cash Reserve Ratio (CRR) at 22.5 per cent, the Liquidity Ratio (LR) at 30 per cent and asymmetric corridor around the MPR at +200 and -500 basis points.

But this was even as the MPC faced an uncertain fate over whether it can form a quorum at its next meeting in January next year, following the refusal by the Senate to consider for confirmation President Muhammadu Buhari’s nominees for the CBN.

Buhari last April had announced the appointment of Prof. Ummu Ahmed Jalingo, Prof. Justitia Odinakachukwu Nnabuko, Prof. Mike I. Obadan, Dr. Abdu Abubakar and Adeola Adetunji as Non-Executive Directors of the Board of Directors of CBN.

In October, the president also tapped Mrs. Aishah Ahmad as the next Deputy Governor of the CBN. Ahmad was to replace Dr. Sarah Alade who retired from the Bank earlier this year.

He had also announced the nomination of Professor Adeola Festus Adenikinju, Dr. Aliyu Rafindadi Sanusi, Dr. Robert Chikwendu Asogwa and Dr. Asheikh A. Maidugu as new members of the MPC.

The four nominees were meant to replace four current members of the MPC whose tenures will expire at the end of the year.

However, shortly after their names were sent to the Senate for confirmation, the upper legislative body said it would not consider the nominations in line with its resolution to suspend all executive confirmation requests until the acting chairman of the Economic and Financial Crimes Commission (EFCC) Ibrahim Magu was removed.

Should the Senate make good its promise not to confirm the 10 nominees for the central bank, it will be impossible for the MPC to form a quorum at its next meeting slated for January.

The MPC is a 12-member body whose objective is to maintain price stability and support the economic policies of the federal government by formulating monetary and credit policies.

The MPC, according to the website of the CBN, shall comprise the governor of the Bank who shall be the chairman; the four deputy governors of the Bank; two members of the board of directors of the Bank; three members appointed by the president; and two members appointed by the governor.

But a CBN official said Tuesday that with the possibility of eight members absent at the next meeting of the MPC in January, it would be impossible to form a quorum.

“As you know, four external members of the committee will be stepping down at the end of the year and already we are one deputy governor short. On top of this, we have no board of directors.

“So, with the five non-executive directors who were nominated still waiting for Senate confirmation, the deputy governor-designate and the MPC nominees who have still not been confirmed, we don’t know how a quorum will be formed.

“This would be dangerous for the economy and the markets, as several investors and analysts take positions on the basis of the MPC meetings every two months,” he explained.

Meanwhile, on the retention of the policy rate and other ratios, the CBN Governor, Mr. Godwin Emefiele, who briefed journalists Tuesday on the outcome of the two-day meeting in Abuja, said the MPC took into consideration several factors in arriving at its decisions.

He said: “In arriving at its decision, the committee appraised potential policy options in terms of the balance of risks. The committee also took note of the gains made so far as a result of its earlier decisions, including the stability in the foreign exchange market and the moderate reduction in inflation and thus extensively deliberated the options regarding whether to hold, tighten or ease the policy stance.

“While tightening would strengthen the impact of monetary policy on inflation with complementary effects on capital inflows and exchange rate stability, it nevertheless could also potentially dampen the positive outlook for growth and financial stability.

“On the other hand, whereas loosening would strengthen the outlook for growth by stimulating domestic aggregate demand through reduced cost of borrowing, it could aggravate upward trend in consumer prices and generate exchange rate pressures.

“The committee also feels that loosening would worsen the current account balance through increased importation. On the argument to hold, the committee believes that key variables have continued to evolve in line with the current stance of macroeconomic policy and should be allowed to fully manifest.

“Members noted that the developments in output and inflation in particular required effective close monitoring in order to gain clarity on the medium term optimal path of monetary policy.”

Emefiele stated that in consideration of the foregoing, the committee decided by a vote of eight to one to retain the MPR at 14.0 per cent alongside all other policy parameters, adding that one member voted to reduce the MPR by 100 basis points.

Emefiele further noted that forecast for key macroeconomic variables indicated a positive outlook for the economy up to the first quarter of 2018, adding that this was predicated on continued implementation of the 2017 budget into early 2018, anticipated improvements in government revenue from the implementation of the Voluntary Asset and Income Declaration Scheme (VAIDS) as well as favourable crude oil prices.

The development of finance initiatives by the CBN in the real sector, particularly in agriculture, he said, were expected to continue to yield positive results in terms of output expansion and job creation.

“Focusing on the downside risks to the outlook, the committee noted the low fiscal buffers and weak aggregate domestic demand. On the external front, widening global imbalances, and rising geo-political tensions were some of the crucial risks identified,” he added.

According to him, the MPC noted with satisfaction the second consecutive quarterly growth in real GDP following five quarters of contraction.

“In addition, members welcomed the relative stability in the exchange rate, particularly the narrowing premium and the very slow deceleration in consumer price inflation, largely attributable to base effects.

“Overall, the economy has begun to show strong signs of recovery as public investment has picked up with increased housing construction at the federal and state levels, as well as shipping activities at the ports.

“The committee was, however, of the view that policy makers must not relent in their aggressive policy initiatives aimed at continuing the positive growth trajectory.

“The committee was also concerned about potential adverse external developments and the cautious approach to lending and financial intermediation by domestic deposit money banks.

“The committee similarly evaluated other concerns in the domestic economy and the opportunities for strengthening output recovery, noting that some highly critical sub-sectors were yet to resume growth.

“The committee noted the significant contribution of food prices to headline inflation and observed that the benefit of base effect on overall headline inflation had substantially dwindled.

“Members, however, expressed confidence that the tight stance of monetary policy and the stability in the exchange rate of the naira should continue to positively weigh in on price developments.

“The committee reaffirmed its commitment to maintaining price stability, which is crucial to sustainable economic growth and development,” he stated.

The committee also welcomed the review of the Economic Recovery and Growth Plan (ERGP), in an effort to realise the objectives of the plan, but called for the quick passage of the 2018 Appropriation Bill by the National Assembly, so as to keep fiscal policy on track and deliver the urgently needed reliefs in terms of employment and growth of the economy.

On financial stability, the committee noted the concentration of non-performing loans in a few sectors but observed that the overall condition and outlook for the banking system was stable, as deposit money banks’ balance sheets remained strong.

“This assessment is strengthened by developments in the national accounts and the expectations that the affected sectors are returning to growth.

“Nonetheless, the committee urged further strengthening of supervisory oversight and deployment of early warning systems in order to promptly identify vulnerabilities and proactively manage emerging risks in the banking system.

“The committee further observed that government was increasing debt, both domestically and externally, thus crowding out the private sector,” the governor said.

On the $3 billion Eurobond recently floated by Nigeria, Emefiele observed that its oversubscription by $11 billion was a sign of the growing investor confidence in the Nigerian economy.

He said the roadshow for the Eurobond took place last Thursday and Friday, adding that the pricing was done on Monday with a very impressive outcome.

The bond was oversubscribed to the tune of about $11 billion. However, he said only $3billion could be accessed.

On the question of mounting domestic and foreign debts, the CBN governor said there was nothing wrong in borrowing.

“But I think what is important is how we deploy the money or most of the funds being borrowed. But I am happy that the specific reasons for these borrowings are targeted at infrastructure development.

“I am sure you all know that most of the borrowing right now is targeted to infrastructure – road development, construction, rail, airports and various other infrastructure development projects that will spur economic activities in the country and ultimately continue to accelerate the growth trajectory of the country,” he said.

About the Author

Samed Olukoya
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York based Talk Markets and, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya; Email: [email protected]; Tel: +2347065163489.

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